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Who will pay for MoPac cost overruns? Agency, contractor deal in sight

The MoPac construction project, which is adding a toll lane on each side from downtown to Parmer Lane, has taken more than two years longer than officials originally expected. RALPH BARRERA/AMERICAN-STATESMAN

Posted: 12:00 a.m. Sunday, September 24, 2017

Highlights

The Central Texas Regional Mobility Authority board Tuesday will consider approval of a deal with CH2M.

Officials did not release the potential terms of the deal for the long-overdue toll lane project.

The fixed price contract for the MoPac project would give the company just $120 million at this point.

Contractor CH2M argued in March it should be paid $240 million, with some cost overruns included.

They’ve butted heads and talked of lawsuits as the MoPac Boulevard toll lane construction project has dragged on two years beyond its target completion date.

Now the Central Texas Regional Mobility Authority and its toll project contractor appear to be near a financial settlement.

The mobility authority board, in a specially called meeting scheduled for Tuesday morning, will consider an agreement with CH2M, the Denver-based engineering and construction firm that in April 2013 agreed to design and build the 11-mile project.

The contractor agreed then to a fixed price of $137 million. But in a March 2017 memo, written when the project was a year and a half behind schedule, CH2M argued that it should be paid $240 million — a figure that doesn’t include about $120 million the company has already written off, according to quarterly reports.

Mobility authority officials confirmed last week that a proposed settlement was nearly ready after protracted negotiations with CH2M but declined to release details about its terms. Mike Heiligenstein, the authority’s executive director, said it would resolve all of CH2M’s claims, “known and unknown.”

“This has moved away from litigation and toward, ‘Let’s look at some of the things we think have some merit,’ ” Heiligenstein said last week. “We’re working through all that and … we’ll have a meeting to try and wrap up all of this into a package. That way we don’t end up in a courthouse for years and years.”

Doing the math

The mobility authority believes it owes CH2M about $120 million under the original contract: Agreed-upon change orders took the contract cost to about $140 million, and then the agency subtracted a $20 million penalty allowed under the contract if the contractor finishes late.

The original target date for completion was Sept. 17, 2015. Instead, just the northern half of the northbound toll lane opened in October 2016; the southern segment could open as early as this weekend, and the southbound toll lane is expected to open in the first half of November. Landscaping, sound walls and other work might continue for a few months beyond that, some of it done by other contractors.

CH2M declined to comment for this story. But in a March 2017 memo, the company pointed to various factors beyond its control and argued that it should be granted a 554-day extension from the original completion date plus a $99,245,244 increase in the contract price.

CH2M’s math would put the contract price at $240 million. Factoring in other MoPac costs, that would hike the mobility authority’s overall project tab to close to $300 million — a figure seemingly beyond its means at this point.

The mobility authority budgeted $204 million for this project, including early design and asbestos remediation beyond the CH2M contract. Just $5 million of that pot of money remains unallocated.

Heiligenstein said any added costs in the proposed settlement could be covered by the agency borrowing $25 million by selling bonds tied to coming toll revenue from MoPac. An agreement between the authority and the Capital Area Metropolitan Planning Organization, under which the agency agreed to pay CAMPO $230 million over the next 22 years from MoPac’s tolls, allows the authority to incur the additional debt, Heiligenstein said.

The agency also has about $70 million in reserves, Heiligenstein said, although officials implied that the settlement would not require dipping into those savings.

Behind the delays

The long delay in completing the project has had innumerable causes, according to project officials and documents obtained by the Statesman. Most of those surfaced long ago as the public and the media sought answers for what amounts to a doubling of the estimated project duration, and the lane closures associated with the construction.

• The discovery of underground utility lines in unexpected places. For instance, TxDOT duct work buried along the west side of the highway turned out to be shallower than expected, and that caused delay in building roadside concrete structures between Enfield Road and West 45th Street.

In its March memo, CH2M chided the mobility authority, saying it had to deal “with owner-directed changes, interference, delays and alterations in the sequence of work,” what it called the “disruption in the logical flow of the work.”

Instead of building traditional overpasses linking downtown to the MoPac toll lanes, CH2M decided to build underpasses — a design choice that added to the delays and degree of difficulty for the project, mobility authority officials say. RALPH BARRERA/AMERICAN-STATESMAN

The company also faults the authority for rejecting a proposed construction plan that would have temporarily moved all freeway traffic south of Enfield to the frontage roads and lowered the number of available traffic lanes, a setup that the company argued would have sped up work on the downtown underpasses linking to the new toll lanes.

Mobility authority officials, meanwhile, have characterized CH2M’s management of the project as chaotic, claiming that the company has had seven project managers during the four years of work.

Beyond that, the agency said, CH2M has continually made promises about making up lost time and then failed to dedicate resources to the job to meet the new schedules. And the company’s original bid, more than $60 million below its closest competitor, might have been unrealistically optimistic, authority officials have said.

“I think they really believed in their heart of hearts that no matter how late this project came in, they’d be able to sue us and get $100 million,” Heiligenstein said in an interview last week. “We decided we weren’t going to be intimidated by that threat. So we got caught in a sort of do-loop where it was, ‘Are they going to litigate?’ And so everyone started to be careful and watching everything they do and say. It became a very contentious relationship.”

Hitting the road

But now both sides are eager to move on.

CH2M announced in August a pending sale of the Denver-area company to Jacobs Engineering, a global firm based in Dallas. Jacobs has worked for the mobility authority on several other projects, including the South MoPac toll project environmental study and Texas 45 Southwest. The acquisition deal between the two giant engineering and construction companies could conclude by year’s end.

Speaking in August to stockholders in an online presentation, CH2M Chairman and CEO Jacque Hinman noted the delayed MoPac job and a troubled Australian power plant contract and said, “We’re putting those projects behind us.

“We’re getting close to completion for the Texas tollway project while still aggressively pursuing recovery of costs due for claims and change orders,” Hinman added.

The mobility authority recently did an estimate of what it would take now to build an identical project to the one nearing completion, including the troublesome “undercrossings” south of Enfield. The agency’s estimate: $250 million to $275 million.

“The main reason for doing it,” Heiligenstein said, “is that they kept throwing out numbers to me about how much this thing was costing them, and I had nothing to benchmark this to. You’re saying it’s a $300 million job. How do I know? What is the real investment that the community is getting?”

This week, assuming the proposed settlement holds up, the authority — and Central Texas — will find out what the makeover and expansion of MoPac has really cost.

THE PLAYERS

CH2M, formerly CH2M Hill, is an Englewood, Colo.-based firm that designs and builds roads, utility projects and other infrastructure, while also providing a range of planning services. The company says it works in more than 50 countries on projects ranging from bridges to water treatment plants to nuclear waste management. It signed a $136.6 million contract in April 2013 to build the North MoPac toll lanes.

The Central Texas Regional Mobility Authority, founded in 2002, is a governmental agency formed by Travis and Williamson counties to build and operate toll roads. The agency operates the 183-A and U.S. 290 East tollways and is overseeing construction of the North MoPac toll lanes. It is also building the Texas 45 Southwest toll road.

EYES ON GOVERNMENT

Ben Wear has covered Austin-area transportation since 2003. He has consistently spotlighted concerns about budgets and spending by Capital Metro, the city of Austin and the state Department of Transportation.

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